chapter  2
25 Pages

Third Party Benefactor and Well-placed Incentives

WithStuart S. Nagel

The Chinese faculty salaries problem illustrates a number of broader aspects of public policy evaluation. First, having a third party benefactor is a useful way of arriving at super-optimum solutions, but the third party benefactor does not have to be the government. Second, it is important to consider the side-effects of a super-optimum solution (SOS) solution on the gross national product. A SOS involves raising gross national product fast by use of well-placed incentives. This means incentives that relate to better marketing, more competition and more equitable distribution. As part of the transition from a communist economy to a free marketplace, a key problem is the inflation which is likely to occur. At the macroeconomics level, public policy is primarily concerned with decreasing unemployment and inflation, or increasing employment opportunities and price stability. One could add the policy of doing nothing to provide housing for the poor.